'By virtue of exchange, one man's prosperity is beneficial to all others.' – Frédéric Bastiat

Poor Poverty Statistics

Poverty is an awful social condition and many studies show that it produces a wide-array of negative externalities, including crime and substance abuse. Although eradicating poverty is a noble cause, elected officials frequently politicize the issue and use “poverty reduction” as a means of saving face and many interest groups stretch the definition of it to absurd lengths, which distracts us from discussing real, abject poverty in Canada and abroad.

The Cape Breton Post and the Chronicle Herald have given significant coverage to the issue following a report released by the Canadian Centre for Policy Alternatives (CCPA). The most shocking statistic in the report is that 33 per cent of children in Cape Breton are living in poverty. In 2014, one out of every three children in Canada live in poverty, which, from the outset, appears to be a terrible social blight that the government needs to rectify. Those calling for action would certainly be justified in doing so if the situation were as bad as they describe.

Statistics Canada does not have an official measure of poverty and the statistical agency said it would not institute one without Parliamentary consensus. It does, however, measure low-income individuals and families using multiple methods: the Low-income Cut Off (LICO), the Low-income Measure (LIM), and the Market Basket Measure (MBM). LICO and LIM measurements are relative measures of poverty. In other words, these measures determine poverty relative to another statistic, such as the median income. If income gains in the top 50 per cent of the income distribution were faster than in the bottom 50 per cent, for instance, these measures would make it seem as though more individuals have entered poverty. In the case of children, for instance, Statistics Canada noted that there was a statistically insignificant decrease in LICO rates between 1979 and 2009, whereas the LIM and MBM rates increased between 2008 and 2009.

The CCPA study relies on the After-tax Low Income Measure (AT-LIM) to gauge poverty rates in Nova Scotia, which defines poverty as 50 per cent of median income adjusted for family size. This measure and the CCPA study are problematic because relative measurements of poverty are not indicators of absolute wellbeing and the AT-LIM does not reflect income growth of low-income individuals: an increase of income for all groups would indicate that poverty has not improved. The nature of this measurement also allows for groups and politicians to define poverty according to their own ideological beliefs and gives them justification for implementing large social programs in the interest of eliminating poverty.

Measuring absolute poverty is a more accurate method to assess how many people are living in actual poverty. Chris Sarlo, a Senior Fellow with the Fraser Institute and economist at Nipissing University, used the “basic needs” approach to measure poverty. This method attempts to define the basic needs of individuals to sustain long-term physical wellbeing. Essentially, there is a basket of goods and the poverty line represents the amount of income necessary to obtain those goods. According to Sarlo’s calculations, this measure fell from 12 per cent of the population in 1973 to 5 per cent in 2004. Statistics Canada uses the MBM, which is a much broader basket than the Fraser Institute, and ideology, too, can shape the “basket of goods.” For instance, some baskets include university education, but one could reasonably argue that a lack of university education does not constitute abject poverty.

In its truest form, abject poverty is extremely problematic and requires a solution, however, its prevalence in Nova Scotia and Canada is largely exaggerated. Relative poverty, on the other hand, is typically rooted in a lack of economic opportunity in a given area and the best response is pro-growth policy–something the region has been sorely lacking for quite some time.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies